When thinking about bike sizes it's often difficult to know just how the bike will fit. What we've found is that the inseam measurement is possibly one of the best determining factor in getting the correct fit.
A good rule of thumb for little one's just starting out or if they are a tad timid is to have their feet flat on the ground while seated on the saddle. This translates to a saddle height that matches their inseam. However, if your little one is already riding and shows confidence then having the seat height about 2-2.5" above their inseam may be a better fit and will allow them to grow into the bike a bit longer.
Please check out the chart below for a good way to measure the inseam properly.